Global Economic Outlook | Week #2

The Americas Economic Outlook!

Although December's Non-Farm Payroll (NFP) numbers were significantly better than expected, with 216K jobs added compared to the 175K estimate, the three-month average remains below pre-pandemic levels. Additionally, the November Job Openings and Labor Turnover Survey (JOLTS) reported figures under 9 million, which is concerning. The hiring rate has dropped to its lowest since 2014, and the quit rate has fallen below its pre-pandemic level for the first time. These indicators suggest that the US labor market is losing momentum, raising more concerns. A similar situation is observed in Canada, where the employment rate has held steady at 5.8%.

 

As we enter the first full trading week of 2024, several important economic data releases and the kickoff of Q4 2023 earnings reports are anticipated.

Tuesday will see the release of the NFIB Small Business Optimism Index. The US economy has been grappling with a mix of data. Although GDP numbers and labor data for 2023 have been satisfactory, indicators like the Leading Economic Index (LEI) and NFIB Small Business Optimism have been somewhat lackluster. Real GDP growth has outperformed most estimates, unemployment has remained low, and equity markets have recorded solid gains over the year. Nevertheless, the impact of higher interest rates and tighter credit standards on small businesses, which are crucial to the labor market, might have negative repercussions for the stock markets this week, deviating from previously encouraging trends.

 

The key event this week will be Thursday's US inflation report, which is crucial for market players attempting to anticipate shifts in monetary policy, especially following the Non-Farm Payroll (NFP) numbers. Consumer inflation remained unchanged in October and saw a modest 0.1% increase in November, partly due to falling energy prices. The core Consumer Price Index (CPI), excluding food and energy, has also been relatively stable, with monthly increases between 0.2% and 0.3%. Given the gradual rise observed in Europe, a slight uptick in December's figures is anticipated, potentially leading market participants to expect a rate cut in the latter half of the year rather than sooner.

 

Other significant data releases this week include consumer credit, international trade balances, and the producer price index. On the earnings front, major reports are expected starting January 12, including those from UnitedHealth Group (UNH), JPMorgan Chase (JPM), Bank of America (BAC), Wells Fargo (WFC), BlackRock (BLK), Delta Air Lines (DAL), and Bank of New York Mellon (BK).

 

In other countries, key inflation data from Brazil and Mexico are due for release. In Brazil, consumer inflation for December is anticipated to decrease slightly, with an annual rate projected at 4.54%, a drop from the previous 4.68%. Conversely, in Mexico, inflation is expected to rise, reaching 4.56% in December, up from 4.32% in November. This uptick in inflation suggests that the Bank of Mexico may maintain its policy rate of 11.25% for a longer period of time.

 

European Economic Outlook

Europe is expected to have a relatively calm week following a busy period with PMI surveys and inflation data. On Tuesday, the Eurozone unemployment rate for November is anticipated to remain stable at 6.5%. Thursday will see the publication of the ECB Economic Bulletin, which should provide deeper insights into the European economic situation. Additionally, French inflation figures for December, expected to show a slight increase, will likely draw attention on Friday.

 

In the UK, the focus will be on November's GDP data, set to be released on Thursday. This data will offer the latest insights into the economic condition in 2023. November's GDP is projected to see a marginal increase of 0.2%, but the monthly GDP 3M/3M-Change is forecast to decline by -0.1%. These figures suggest that the British economy was dangerously close to a technical recession—defined as two consecutive quarters of negative GDP growth—during the second half of 2023.

 

Meanwhile, in Russia, amidst challenging winter conditions due to the ongoing conflict, December's consumer inflation is expected to rise by 0.9%, a decrease from November's 1.1%. However, the annual inflation rate is projected to climb slightly to 7.6%, up from 7.5% in November. These inflation figures are likely to exert additional pressure on both the Russian Ruble and the stock markets.

 

Asia and the Pacific Economic Outlook

In Japan, the focus will be on the Tokyo Consumer Price Index (CPI), a leading indicator for the National CPI. The Tokyo Core CPI year-over-year is expected to be 2.1%, slightly down from the previous 2.3%. Additionally, Household Spending figures, anticipated to decline further by 2.3% in November, will be closely monitored.

 

Another key data point, Japan's Labor Cash Earnings for November, is scheduled for release on Wednesday. This data is particularly significant for the Bank of Japan (BoJ), as it will provide insights into potential changes in their policy rate in 2024 and the possibility of exiting the negative rate policy. Although there's no consensus on the forecast, the previous report in October showed an increase of 1.5% year-over-year, with a positive revision for September. A similar 1.5% year-over-year rise is expected for November. Given the firming of Japanese wage growth over the past two years, these anticipated numbers could lead the BoJ to raise its policy rate by 10 basis points to 0.00% at its April policy announcement.

 

Last week's data revealed that China's official PMI surveys for December unexpectedly fell to 49.0, while the services PMI rose less than anticipated, reaching 50.4. Additionally, the Caixin manufacturing PMI for December edged up to 50.8, with the Caixin services PMI climbing to 52.9.

 

Looking ahead to this week, there are expectations for New Loans to increase significantly to 1,370.0 billion, a notable improvement over the previous month's $1,090.0 billion. This forecast is particularly encouraging for small businesses. However, the inflation data set to be released on Friday tempers this optimism. Headline inflation is projected to decrease by 0.4% in December, and producer inflation (PPI) is also expected to fall by 2.6%. These figures may bolster the concern that the start of the coming year could be challenging for China's economy.